Final answer:
Using the Capital Asset Pricing Model (CAPM), the expected return on the market is calculated to be 12.17%, which is closest to option b) 12.68%.
Step-by-step explanation:
To calculate the expected return on the market, we use the Capital Asset Pricing Model (CAPM), which is represented by the formula:
Expected Return of the Stock = Risk-Free Rate + Beta * (Expected Market Return - Risk-Free Rate)
By plugging in the known values and rearranging the equation to solve for the Expected Market Return, we get:
11.6% = 5.8% + 0.91 * (Expected Market Return - 5.8%)
We can then solve for Expected Market Return:
Expected Market Return = (11.6% - 5.8%) / 0.91 + 5.8%
Expected Market Return = 5.8% / 0.91 + 5.8%
Expected Market Return = 6.3736% + 5.8%
Expected Market Return = 12.1736%
After rounding to two decimal places, the Expected Market Return is 12.17%.
Therefore, the closest answer from the provided options is b) 12.68%